U.S. economy stalls in first quarter as activity weakens broadly

Thu Apr 28, 2016 2:03pm EDT
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By Lucia Mutikani

WASHINGTON (Reuters) - U.S. economic growth braked sharply in the first quarter to its slowest pace in two years as consumer spending softened and a strong dollar continued to undercut exports, but a pick-up in activity is anticipated given a buoyant labor market.

Gross domestic product increased at a 0.5 percent annual rate, the weakest since the first quarter of 2014, the Labor Department said on Thursday in its advance estimate. Growth was also held back by businesses stepping up efforts to reduce unwanted merchandise clogging up warehouses.

Cheap oil, which has pressured the profits of oil field companies like Schlumberger (SLB.N: Quote) and Halliburton (HAL.N: Quote), remained a drag, sending business spending tumbling at its quickest pace since the second quarter of 2009, when the recession ended.

Almost all sectors of the economy weakened in the first quarter, with housing the lone star.

"The economy essentially stalled in the first quarter, but that doesn't mean it is faltering," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. "Some of the restraints to growth are dissipating. Growth is likely to accelerate going forward."

The dollar's rally is largely over, oil prices appear to be stabilizing and the bulk of the inventory liquidation is out of the way. In addition, the jobs market remains fairly robust.

A separate report from the Labor Department showed first-time applications for unemployment benefits rose less than expected last week and the four-week average of initial claims fell to its lowest level since 1973.

Employment gains averaged 209,000 jobs per month in the first quarter. The disconnect between GDP growth and employment implies productivity remained weak in the first quarter after sinking in the final three months of 2015.   Continued...

A shopper takes part in Black Friday sales at a Target store in Chicago, Illinois, United States, November 27, 2015. REUTERS/Jim Young